Personal Money Management Skill: Budgeting. Step #11
A budget or a spending plan is essentially a “mirror of your life” expressed in terms of where you invest your “life span energy”. This is expressed in terms of dollars and cents. A budget provides the framework for a workable, comfortable, rewarding, goal oriented spending plan that brings your “life in balance”. Author and speaker, John Maxwell, has the best definition of a budget that I have found: "A budget is people telling their money what to do instead of wondering where it went." This is a cornerstone of personal finance and financial freedom.
Why is Personal Money Management So Important?The average American family’s spending statistics are deteriorating rapidly. They lack personal finance skills. This is mostly due to runaway spending. As a society, we have no margin- that is we often spend more than we earn. Often this is unintentional, but living in negative negative margin causes us great distress.
If we operated on a cash-only basis, spending more than you earn would be impossible. The way we are able to sustain our overspending is by using credit cards. This modern convenience has enabled millions of people to slide into financial chaos. The easy consumer credit makes it all too easy to overspend. Before we know it, we are caught in the debt trap - and escape is difficult. (Don’t worry- we’ll show you how to escape.) Without budgeting, money management is impossible because you simple don’t know how much you are spending and where the money is going. You need to know where you stand financially. You must know your exact financial situation because that is what you want to improve. There is no way to measure improvement if you have no way of keeping score. The goal of personal money management is to live where your income is greater than your expenses. This is margin.
You’ll be happy if you can spend less than you earn. Margin gives you financial freedom.
Many people are living in stress because the spend the same amount that they earn.
You will be miserable, even distressed, if you spend more than you earn. Here's a way to get REAL control of your spending
Without keeping score (a budget), you will never know this happiness. Budgeting will enable you to move to a lifestyle with margin. When you master personal money management, you will be able to manipulate your spending such that you will be in control of your money, rather than you being enslaved to it. This is true financial freedom. This personal finance truth is critical to understand, because to most people, budgeting brings up thoughts of unpleasant scarcity and deprivation. Yes, there may be delayed gratification involved, but this will lead you to freedom rather than bondage. However, without knowing, tracking, and managing your money, personal financial freedom will be impossible to achieve. Not only that, but without having a budget, you will ALWAYS be stressed about money. Why? Because if you don’t really know how you stand financially, you won’t ever be able to feel truly relaxed, secure or even wealthy. Having a budget with both adults in the family’s involvement keeps you aware of how you are doing. Without a budget, you’ll never know where you really stand financially. You won’t know if you can afford things you want or need to pay for. You’ll never have extra money unless you budget. It just slips away, vanishing into places unknown. To get a rude awakening and reality check about this, take our
income vs. assets assessment. Why Most People Ignore Personal Money Management
The problem is that most people think they have a good "feel" for where their money goes. This false belief makes them think that they don’t need any personal money management. They think that they are basically doing "OK". However, the reality is that the vast majority of them have their credit cards maxed out and spend 4-5% MORE than they earn.
As we explained above, without knowing how you stand financially and having no personal money management plan leaves you miserable. What is their flawed personal money management strategy? What do they do next that can make matters worse? They consolidate their loans or refinance their homes and have a renewed false sense of security. But, here is the huge trap of doing this… Without beginning a responsible personal money management plan, they continue on the wrong path with the same bad habits. This cycle continues and they just end up deeper in debt. Please don’t let this happen to you. Follow the trail of financial freedom.
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Financial freedom is a matter of taking one personal finance step at a time.
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